Barclaycard was branded “grossly irresponsible” yesterday for urging customers to take out cash on their credit cards.

Britain’s biggest credit card company is sending letters to thousands tempting them with “instant cash”.

It suggests they use the money to pay for “a cup of coffee or your daily paper”. To prompt them further, the company says their cash withdrawal limits have been raised.

What the letters do not say is that interest starts piling up at a rate of 27.9 per cent the minute cash is withdrawn from an ATM.

There is also a fee for withdrawals - 2.5 per cent of the cash with a £2.50 minimum.

It makes obtaining money this way up to three times more expensive than a personal loan or an overdraft.

Customers who do not pay their bill in full as soon as it arrives will find interest stacking up alarmingly.

The news comes as figures revealed fixed-rate mortgage rates for new customers have hit the highest level since the start of the decade.

The average rate for a two-year loan, the most popular mortgage, reached 6.64 per cent, the highest rate since 2000. It compares to an average rate of 4.34 per cent two years ago.

Figures compiled by the personal finance publisher MoneyFacts show that a home owner who took out a five-year deal in 2003 for £250,000 is now facing a rise of £500. Some 1.4million home owners are due to re-finance their mortgages this year.

Experts said Barclaycard was using ‘dreadful’ tactics. Chris Tapp, a director of the debt advice charity Credit Action, said: “When we are going through one of the worst periods of financial turmoil for many years, when people are really starting to struggle with their bills, this type of letter is grossly irresponsible.

“Making cash withdrawals appear more normal in this way, like an everyday activity, is extremely bad advice.

“It may be good for the company but it is dreadful for the consumer.”

Beccy Boden Wilks, from the advice group National Debtline, said: “If you are taking cash out on your credit card to pay for a cup of coffee or a newspaper then you really are in financial difficulty.

“There are dozens of cheaper ways to get money for these items. It is a classic sympton of someone who does not have enough to pay day-to-day bills.

“You really shouldn’t be encouraged to do this.”

Andrew Hagger, from the financial-website Moneyfacts, said: “This is putting temptation in front of people who may already be struggling.

“Those less financially astute could end up with some serious debts.”

The experts point out that cash withdrawals are the last debts to be cleared when you pay your credit card bill.

If you took out £250 and repaid only the minimum each month, it could take 14 years and nine months to clear the debt.

After 12 months, the interest bill would be £61.51, rising to an astonishing £651.24 by the end.

Even Matt Barrett, former boss of Barclaycard’s parent bank, Barclays, once urged people not to use their credit cards because they can be such a rip-off.

He told MPs: “I do not borrow on credit cards. I have four young children. I give them advice not to pile up debts on their cards.”

The controversial letter to Barclaycard’s Platinum customers is in stark contrast to the approach of rival card companies.

A survey from the comparison website Uswitch earlier this week revealed that 1.6million credit card customers have had their credit limits slashed in the last 12 months.

A further 1.3million have been charged a fee or had their accounts closed.

Earlier this year, the internet bank Egg axed the cards of 161,000 customers it said had a “higher than acceptable risk profile”.

Barclaycard insisted last night it had written only to lower-risk customers about cash withdrawals.

It claims some had been offered cash withdrawal rates lower than the 27.9 per cent charged on average.

A spokesman said: “This move is primarily aimed at customers who use other competitor cards for cash, rather than targeting non-cash using customers.

“As always with cash advances, we’re transparent about the conditions attached to cash, including an explanation of fees and explaining that customers will be charged interest from the moment they withdraw money.”

The chief executive of the Financial Services Authority last night said the “fear and greed” of bankers had contributed to the credit crunch.

Hector Sants criticised bonuses and insider dealing in the City and said senior bosses did not understand the complex mortgage products they were selling.

Mr Sants told Channel 4 News: “On bankers’ bonuses I would agree with the point that fear and greed is a factor in leading us to where we are.

“I’ve no doubt that all bank management are being reminded of a number of basic truths over the past months.”

He added: “Investors and banks forgot one of the golden rules - Don’t buy what you don’t understand.”

Bills rising at above the rate of inflation for a range of essentials are compounding the financial crisis for many. And with the cost of living expected to rise even higher this year, the problem is likely to escalate.

Banks have clamped down on this type of lending. So many of these ten million households will be the victims.